Update (October 2026): Updated with the IRS’s procedures in Rev. Proc. 2025-28. The catch-up deduction can be taken in 1 year or spread over 2, and amended returns for the small-business election were due by July 6, 2026.
On July 3rd, the House passed the budget bill President Trump has dubbed the “One Big Beautiful Bill Act”. Tucked within the OBBBA (Section 70302) is a massive boon for U.S. corporations. While it’s not a full reinstatement of the old way of expensing R&D, the OBBBA dramatically improves the playing field.
The New Reality
- While international R&D expenses will still need to be amortized over 15 years, domestic R&D expenses can once again be deducted from current year revenues, starting in the 2025 tax year.
- Companies that had begun capitalizing domestic R&D expenses from 2022 to 2024 can now elect a Catch-Up Deduction, in which they deduct all the remaining unamortized R&D expenses in the 2025 tax year, or spread them evenly over 2025 and 2026. This deduction can significantly improve cash flow by lowering their tax burden.
- Eligible small businesses (not tax shelters, and meeting the Section 448(c) gross receipts test for their first tax year beginning after 2024, $31 million for 2025) could choose to retroactively apply full expensing of their R&D to all tax years beginning with 2022, amending prior returns to recover amortized costs they’d already spent. Those amended returns were due by July 6, 2026 at the latest.
What This Means for You
The mechanics of how to maximize your R&D credit is complicated, but the tax experts at Neo.Tax can walk you through the process and help you take advantage of this unprecedented opportunity.
Many in Silicon Valley had been loudly calling for Section 174 to be changed back to its pre-TCJA form. After plenty of deadlock in Congress these last few years, it’s finally happened. So it’s more important than ever to understand the best way to be strategic when it comes to R&D.